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In every area of practice, WilmerHale brings the insight, dedication to excellence, and commitment to client service needed for our clients to achieve their business objectives. Our five-department structure and team approach to service enable us to provide the highest level of responsiveness and access to lawyers with the most appropriate experience.

Affordable Care Act Litigation: The Next Round

On June 28, 2012, the Supreme Court upheld the constitutionality of the individual mandate in the Patient Protection and Affordable Care Act (“ACA”), while invalidating the ACA’s conditioning of federal Medicaid funds on state acceptance of newly expanded Medicaid categories.1 The Court’s decision in National Federation of Independent Businesses v. Sebelius (“NFIB”) settled what opponents considered their most fundamental attack on the ACA.2 But a second wave of litigation challenging important aspects of the ACA is already underway, and new cases continue to be filed. The outcome of this next round of litigation may have profound effects on the ACA’s implementation—and thus on important aspects of the health insurance and health care markets in the United States.

Tax Credits in Federally-Facilitated Health Insurance Exchanges

The most recent, and perhaps the most fundamental, new challenge to the ACA concerns the availability of subsidies to individuals who purchase health insurance through a health insurance exchange established by the federal government rather than by a state government.

Heath insurance exchanges—one of the centerpieces of the ACA’s effort to expand the population of those with health care coverage—operate as virtual marketplaces where individuals and businesses can purchase private health insurance.3 Individuals with incomes up to 400% of the federal poverty line who purchase insurance through an exchange are entitled to subsidies in the form of refundable “premium assistance” tax credits.4 The ACA provides that all States shall establish an exchange by January 1, 2014, and provides grants to States to encourage them to do so.5 But it also authorizes the federal government to create and operate exchanges in States that fail to meet that deadline.6 On May 18, 2012, the IRS published a final rule specifying that the tax credits will be available to all qualifying individuals who purchase insurance through any exchange, whether state-run or federally-facilitated.7

On September 19, 2012, the Attorney General of Oklahoma challenged the final rule, contending that the ACA authorizes tax credits only for state-run, not federal-facilitated, exchanges.8 Some estimates suggest that as many as half of the States will not create exchanges before the January 1, 2014 deadline.9 Thus, if Oklahoma were to prevail, individuals in those States would not be eligible for exchange tax credits, and likely millions fewer individuals would gain health insurance coverage than if the rule were upheld.

The Oklahoma Attorney General’s position rests principally on the authorizing language in the ACA, which refers to individuals “enrolled in [a qualified health plan] through an Exchange established by the State.”10 Defenders of the final rule, by contrast, argue that a federally-facilitated exchange qualifies as an exchange “established by the State” for these purposes.11 They assert that the final rule is consistent with the ACA’s structure, purpose, and legislative history.12 And they argue that, to the extent the statutory text is ambiguous, the IRS’s interpretation is entitled to deference under the Chevron doctrine.13 Defenders of the federal government’s position also assert that Oklahoma lacks standing to asserts its claim, and that its challenge is likely barred by the Tax Anti-Injunction Act.14

Contraceptive-Coverage Requirement

The most active litigation challenging the ACA targets its requirement that new, “non-grandfathered,” group insurance plans provide certain contraceptive services at no cost to beneficiaries.15 The regulations implementing this provision, which became effective August 1, 2012, contain an exemption for certain religious employers who do not wish to provide contraceptive services to their employees.16 The regulations also provide a one-year “safe harbor” from enforcement for religiously affiliated institutions that object to the coverage requirement but do not qualify for the exemption.17 The U.S. Department of Health and Human Services (“HHS”) has committed to amend the regulations before the end of the safe-harbor period to further accommodate religiously affiliated institutions.18 More than thirty lawsuits, however, have already been filed challenging the contraceptive-coverage requirement.19

Broadly, the plaintiffs claim that the contraceptive-coverage requirement violates the Religious Freedom Restoration Act (“RFRA”), which prohibits the federal government from “substantially burden[ing] a person’s exercise of religion.”20 They also claim that the provision violates the First Amendment’s Free Exercise Clause, which protects an individual’s right to religious freedom.21

In several of the cases, the government has argued that the plaintiffs lack standing to challenge the contraceptive-coverage requirement. It also has argued that the plaintiffs’ claims are not ripe for judicial review because HHS has demonstrated its intent to amend the regulations to further accommodate religiously-affiliated institutions.22

District courts have dismissed three of the suits for lack of standing or ripeness.23 In O’Brien v. U.S. Department of Health and Human Services,24 the U.S. District Court for the Eastern District of Missouri dismissed the plaintiff’s challenge on the merits, concluding that the requirement does not violate the RFRA or the First Amendment.25 By contrast, on July 27, 2012, a district judge in Colorado granted a preliminary injunction temporarily barring application of the contraceptive-coverage requirement to a “for-profit, secular employer.”26 In so doing, the judge held that the plaintiffs’ RFRA claim would likely succeed on the merits and was “deserving of more deliberate investigation.”27 On September 25, 2012, the Government filed an appeal challenging the preliminary injunction.28 The plaintiffs have filed appeals in the four cases that were dismissed.29 The other cases challenging the contraceptive-coverage requirement remain pending in district courts.30

Maintenance of Effort

A less publicized challenge to the ACA concerns the ACA’s maintenance-of-effort provision, which requires States to maintain certain Medicaid eligibility standards that were in place on March 23, 2010, when the ACA was signed into law, or risk losing federal Medicaid funding.31 On September 5, 2012, the Commissioner of the Maine Department of Health and Human Services filed a motion for injunctive relief in the U.S. Court of Appeals for the First Circuit seeking to enjoin enforcement of the maintenance-of-effort provision.32 The State argues that the provision “is part of the mandatory [Medicaid] expansion struck down” by the Supreme Court in the NFIB decision.33 Maine also contends that the provision is invalid because it “‘surprise[s] participating States with postacceptance or retroactive conditions,’” which the Constitution prohibits.34 On September 13, 2012, the First Circuit issued an order summarily dismissing the State’s motion.35 The State is expected to continue the litigation in federal district court.36

Origination Clause

Another angle of constitutional attack on the individual mandate that one plaintiff has adopted in the wake of the Supreme Court’s NFIB decision is the contention that the ACA violates the Origination Clause, which requires revenue measures to originate in the House of Representatives rather than in the Senate.37Plaintiff Matt Sissel contends that because the Supreme Court determined that the individual mandate was an exercise of Congress’s power to lay and collect taxes, the ACA should have originated in the House but actually began its legislative journey in the Senate. His case had been stayed pending the Supreme Court’s decision, and on Sept. 11, 2012, Sissel sought to amend his complaint to add his Origination Clause claim.38 As the proposed amended complaint acknowledges, the ACA was originally considered in the Senate as an amendment to a bill that did originate in the House, but Sissel contends that because the House bill neither contained nor addressed health insurance, that bill’s House origins should not save the mandate from Origination Clause invalidation.39 The district court has yet to rule.

Independent Payment Advisory Board

In another of the constitutional challenges to the ACA, the plaintiffs have included a claim challenging the constitutionality of the Independent Payment Advisory Board (“IPAB”), a special commission established in the ACA and tasked with recommending proposals to contain Medicare spending.40 The IPAB’s annual proposals automatically go into effect unless Congress affirmatively acts to supersede them with legislation that would achieve the same spending reductions.41 The ACA prohibits administrative and judicial review of the implementation of IPAB’s proposals.42

The plaintiffs in Coons v. Geithner, filed in 2010 in the District of Arizona, challenge the IPAB as an unconstitutional delegation of legislative power to an unelected agency, and argue that the provision barring judicial review of IPAB proposals violates the separation of powers doctrine.43

On August 31, 2012, the district court dismissed the plaintiffs’ IPAB challenge.44 The court noted that “[t]o survive an anti-delegation challenge, Congress need only ‘clearly delineate the general policy, the public agency which is to apply it, and the boundaries of this delegated authority.’”45 The court then concluded that Congress had “met that test” in establishing the IPAB.46 It is unclear whether the plaintiffs will appeal the court’s ruling.

Self-Referral Practices at Physician-Owned Hospitals

Another less publicized challenge to the ACA concerns the availability of Medicare funding for patient referrals made by physicians to physician-owned hospitals. The Medicare Act prohibits reimbursement for services provided to a patient at a medical facility in which the patient’s referring physician, or a member of the physician’s immediate family, has a financial interest.47 Historically, this prohibition has not applied to patient referrals made by physicians with an ownership interest in the whole hospital, as opposed to an interest in a subdivision or department of the hospital.48 This exception is generally referred to as the “whole hospital exception.”49

Subject to certain exemptions, Section 6001 of the ACA limits the availability of the “whole hospital exception” to physician-owned hospitals that (1) had a Medicare provider agreement in place before December 31, 2010, and (2) do not expand their facilities after March 23, 2010, without HHS authorization.50

On June 3, 2010, Physician Hospitals of America and the Texas Spine & Joint Hospital filed a lawsuit claiming that Section 6001 violates their rights to due process and equal protection under the Fifth Amendment.51 The plaintiffs also claim that Section 6001 is void for vagueness and that it effects an unconstitutional and retroactive taking of their real and personal property.52 Shortly after the complaint was filed, the government moved dismiss based on lack of exhaustion of administrative remedies. The district court denied the motion, but subsequently granted the government’s motion for summary judgment on the merits.53 On August 16, 2012, the Fifth Circuit concluded that the district court lacked jurisdiction because the plaintiffs had not exhausted their administrative remedies and thus affirmed dismissal of the suit.54 It remains uncertain whether the plaintiffs will seek review by the Supreme Court.55

2 On July 23, 2012, the petitioners in one of the cases that was denied certiorari in the wake of the NFIB decision filed a petition for rehearing in order to revive religious-freedom and equal-protection challenges to the individual mandate that had not been addressed either by the Supreme Court or the court of appeals. See Petition for Rehearing at 3-8, Liberty Univ. v. Geithner, No. 11-438 (U.S. July 23, 2012). On October 1, the Court directed the Solicitor General to respond to the rehearing petition by October 31, 2012.

8See Complaint at 13-15, Oklahoma v. Sebelius, No. CIV-11-030-RAW (E.D. Okla. Sept. 19, 2012). The challenge was included in an amended version of the complaint. The challenge draws on ideas developed by a number of commentators. See, e.g., Jonathan Adler & Michael Cannon, Taxation without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA, HEALTH MATRIX: J. OF LAW-MEDICINE (forthcoming), (Jul. 16, 2012) available athttp://ssrn.com/abstract=2106789 ; Abbe Gluck, The “CBO Cannon” and the Debate over Tax Credits on Federally Operated Health Insurance Exchanges, BALKINIZATION (July 10, 2012), available athttp://balkin.blogspot.com/2012/07/cbo-canon-and-debate-over-tax-credits.html .

9 Abby Goodnough, Liking It or Not, States Prepare for Health Law, N.Y. TIMES, Sept. 24, 2012, at A1, available athttp://www.nytimes.com/2012/09/24/us/like-it-or-not-states-prepare-for-health-law.html (noting that the governors in seven states “have said they will not create a state-run exchange,” and that as many as thirty states “are exploring their options”); Establishing Health Insurance Exchanges: An Overview of State Efforts, THE HENRY J. KAISER FAMILY FOUNDATION (Aug. 2012), available athttp://www.kff.org/healthreform/upload/8213-2.pdf (“To date, seven states have declared that they will not create a state-based exchange. . . . Another 16 states have not yet committed to a health insurance exchange strategy, but are continuing planning efforts. . . . Nine states have not shown significant exchange planning activity.”).

19See HHS Mandate Information Central, BECKETFUND.ORG, http://www.becketfund.org/hhsinformationcentral/ (last visited Oct. 12, 2012) (listing and describing cases challenging the contraceptive-coverage requirement). The plaintiffs in the thirty-five cases include: (1) for-profit and non-profit organizations that object to the coverage requirement but do not qualify for the exemption, (2) individuals whose employers may stop providing health insurance if required to offer contraceptive coverage, and (3) States that may be required to provide health care for individuals whose employers cease to provide insurance because of the coverage requirement. See id. Another helpful website compiling information on these cases can be found at http://berkleycenter.georgetown.edu/essays/resources-and-background-on-contraception-and-conscience .

31 The ACA’s MOE requires states to maintain the Medicaid eligibility standards that were in effect on March 23, 2010, until the end of 2013 for adults and until October 2019 for children. See ACA, Pub. L. No. 111-148, § 2001(b), 124 Stat. 119 (2010) (codified as amended at 42 U.S.C. §§ 1396a(a)(74), 1396a(gg) (2012)).

32See Petitioner’s Motion for Injunctive Relief, Mayhew v. Sebelius, No. 12-2059 (1st Cir. Sept. 5, 2012)). The State filed its petition for injunctive relief in the First Circuit before seeking relief in federal district court pursuant to Rules 8(2) and 18(2) of the Federal Rules of Appellate Procedure. See id. at 1.

50 Prohibited expansions include increasing the number of operating rooms, procedure rooms, and beds for which the hospital was licensed as of Mar. 23, 2010. See Changes to Whole Hospital and Rural Provider Exceptions, 75 Fed. Reg. 72,240 (Nov. 24, 2010) (to be codified at 42 C.F.R. pt. 362).

In every area of practice, WilmerHale brings the insight, dedication to excellence, and commitment to client service needed for our clients to achieve their business objectives. Our five-department structure and team approach to service enable us to provide the highest level of responsiveness and access to lawyers with the most appropriate experience.